Naira Rebound Faces Fiscal Test, Group Says

The Alliance for Economic Research and Ethics (AERE) has warned that the naira’s rebound could falter if rising debt and weak fiscal discipline persist.

It raised the concern in a statement issued on Wednesday, February 25 and signed by its chairman, Dele Kelvin Oye.

The group said that while the naira’s recovery from over ₦1,600 to about ₦1,340 per dollar on the parallel market signals a break from its earlier free fall.

It stressed that “fiscal dominance remains the biggest threat to sustained stability.”

The warning follows remarks by Vice President Kashim Shettima that the naira “would have appreciated to ₦1,000 per dollar in weeks” if not for intervention by the Central Bank of Nigeria.

AERE acknowledged that reforms initiated under President Bola Tinubu, including foreign exchange market unification in June 2023 and the removal of petrol subsidies a month earlier, restored credibility and eliminated arbitrage in the currency market.

“The shock was brutal, prices spiked, and wallets shrank, but it restored credibility,” it said, describing the reforms as painful but necessary steps that created space for a market-driven exchange rate.

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The group credited the central bank with maintaining a disciplined monetary stance, clearing foreign exchange backlogs and providing limited liquidity support to licensed Bureau De Change (BDC) operators.

It noted that external reserves have recovered to above $50 billion, the highest level in more than a decade, reflecting renewed investor confidence.

However, AERE argued that fiscal pressures are undermining those gains.

Nigeria’s 2026 federal budget, estimated at over ₦58 trillion with a deficit of roughly ₦23.85 trillion, underscores what the group described as a persistent tug-of-war between fiscal expansion and monetary tightening.

“Fiscal dominance is when government spending and borrowing overpower the central bank’s inflation fight,” Oye said. “Nigeria is living with that tension.”

Although federation revenues nearly doubled from ₦16.8 trillion in 2023 to ₦31.9 trillion in 2024, debt service continues to consume a significant share of government income.

The group also criticised sub-national governments for prioritising what it called “non-income-generating projects” such as bus terminals and official residences rather than investments that expand productive capacity.

Headline inflation eased slightly to 15.10 per cent in January 2026 from 15.15 per cent in December, according to the National Bureau of Statistics, but AERE said food prices remain elevated and household purchasing power fragile.

“Macro stability hasn’t reached kitchens,” it expressed.

The organisation further warned that aggressive revenue collection without complementary trade facilitation could stifle private-sector recovery.

It called for faster licensing processes by regulatory agencies and the consolidation of multiple taxes to encourage business expansion.

“A hunting mindset undermines the private-sector dynamism the FX reform was meant to unleash,” Oye said.

The group also highlighted risks tied to the pace of appreciation.

It said non-oil exporters, including cocoa farmers, are facing squeezed margins as local prices outpace global benchmarks, potentially discouraging rural incomes.

It urged authorities to calibrate exchange rate movements carefully and consider targeted hedging tools for export sectors.

It pointed to the 650,000-barrel-per-day refinery built by industrialist Aliko Dangote as a positive structural development that could reduce fuel imports and ease foreign exchange demand.

But it stressed that entrepreneurship alone cannot offset fiscal imbalance.

The group also cited broader social risks, referencing data from the World Bank, which noted that 139 million Nigerians were living in poverty as of October 2025, up sharply from 87 million in 2023.

Without stronger job creation and expanded safety nets, AERE warned, reform fatigue could threaten political and economic stability.

It recommended capping public borrowing, linking sub-national allocations to revenue-yielding investments, publishing project appraisals and shifting spending from consumption to infrastructure such as power, feeder roads and storage facilities.

It also called for expanded targeted cash transfers and greater investment in vocational training and early-childhood education.

“The naira’s rebound reflects real reform, a credible CBN, and Nigerian entrepreneurial grit,” Oye said. “But without fiscal prudence, private-sector facilitation and inclusive spending, appreciation will remain a market statistic — not a lived improvement for most Nigerians.”